Question

1.On March 1, 2020, Sunland Company purchased land for an office site by paying $2680000 cash. Sunland began construction on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2020 $1780000 April 1, 2020 2510000 May 1, 2020 4510000 June 1, 2020 4720000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3540000 was borrowed on March 1, 2020 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2020 was a $1410000, 12%, 6-year note payable dated January 1, 2020. The actual interest cost incurred during 2020 was

a.$487800.

b.$406500.

c.$243900.

d. $434700.

2.
Concord Corporation constructed a building at a cost of $30650000. Weighted-average accumulated expenditures were $13000000, actual interest was $1170000, and avoidable interest was $604000. If the salvage value is $2490000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is

a

$781350.

b

$719100.

c

$748350.

d

$1044100

3. A machine cost $1416000, has annual depreciation of $236000, and has accumulated depreciation of $1121000 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $324500, it is exchanged for a machine with a fair value of $1593000 and the proper amount of cash is paid. The exchange had commercial substance.

The gain to be recorded on the exchange is

a

$88500

b

$59000

c

$177000

d

$0

Answer 1

Question No. - (1) - Answer -

Step - (1) - Information Given -

On March 1, 2020, Sunland Company purchased land for an office site by paying $2680000 cash. Sunland began construction on the office building on March 1.

The following expenditures were incurred for construction

Date	Expenditures
March 1, 2020	$1780000
April 1, 2020	2510000
May 1, 2020	4510000
June 1, 2020	4720000

To help pay for construction, and purchase of land $3540000 was borrowed on March 1, 2020 on a 9%, 3-year note payable.

Other than the construction note, the only debt outstanding during 2020 was a $1410000, 12%, 6-year note payable dated January 1, 2020.

.

Step - (2) - Calculation of Actual interest cost incurred during 2020 -

= [ Amount borrowed * Interest rate * Month ] + [ Debt amount outstanding * Interest rate * Month ]

= [ $3540000 * 9% * 10 / 12 ] + [ $1410000 * 12% * 12 / 12 ]

= $265500+ $169200

= $434700.

.

Step - (3) - Conclusion -

Therefore, Option - (d), is Correct, because actual interest cost incurred during 2020 is $434700.